Moneycontrol Pro Weekender | Exit, pursued by a bear – Moneycontrol

By Kalpana Warrier on May 23, 2020

Dear Reader,

Act III of Shakespeare’s ‘The Winter’s Tale’ probably has the most memorable stage direction ever — ‘Exit, pursued by a bear’. That direction seems rather apt today, as we gradually exit from the lockdown.

The first impact of the easing of the lockdowns is seen from the Flash Composite Purchasing Managers Indices (PMIs) for some of the larger developed economies, all of which show that the pace of contraction in their economies slowed this month.

But they all continued to shrink from the previous month, despite the horrendous April PMI readings. There are no flash PMIs for India, so we’ll have to wait till early June to see how much of a rebound there will be from April’s rock-bottom 7.2 reading.

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Global markets have remained remarkably resilient, thanks to the fire-fighting by central banks and governments in the developed economies. But while the support measures are all very fine, there are limits to what even central banks can do to get the economy moving again. That could be the time when the state of the economy and the markets converge and the current angst about the divergence between the economy and the markets comes to an unfortunate end. Till that happens, the markets may continue to be supported, thanks to the cash with global fund managers.

In India too, the RBI’s monetary policy committee pared the policy rate by another 40 basis points, but at the moment, rate cuts are just pushing on a string. The key takeaway from Governor Shaktikanta Das’s speech was that GDP growth for the current fiscal year would be negative, which is markedly at odds with the government’s Chief Economic Adviser’s forecast of 1 to 2 percent growth.

Note that the RBI governor’s assessment that GDP will shrink this year came after the government’s so-called 20 trillion rupee economic package, which was a bit of a dog’s breakfast. While Das did not spell out how negative growth will be, the Securities and Exchange Board of India has asked companies to tell investors what impact the covid-19 crisis is having on their business, which should be helpful to investors.

The trouble is, with no growth, why on earth will banks take the risk and lend? Even the credit guarantee scheme for small businesses may not be all it is cracked up to be.

The reform measures, especially the announcement about privatisation, are more than welcome, but markets are mourning the lack of a fiscal boost. Given these circumstances, investors would do well to go global in their search for safe stocks that can withstand the storm.

That said, as the lockdown eases, the economy should slowly get back on its feet. But unemployment is still very high.

Given the uncertainties, investors will have to look at stocks that will do well over the long term, as some valuations are still too high. As usual, we also warned you about stocks to avoid at the moment. For those who want to diversify, gilt funds could be an interesting choice. Jio Platforms, of course, continued to raise humongous amounts of money from marquee investors in the midst of a raging pandemic and we had pointed out what that means for shareholders.

The pandemic has forced even the Chinese leadership to give up its GDP target for the year, citing great uncertainty. It is instead readying a new security law to curb the protests in Hong Kong. Reports say that U.S. senators are introducing a bipartisan bill that would sanction Chinese party officials and entities who enforce the new laws in Hong Kong and also penalise banks that do business with them. Relations between the US and China are spiralling downwards rapidly, adding new geopolitical and trade risks to already stressed economies.

How best can Indian companies benefit from the global disenchantment with China and the reset of globalisation and supply chains? We looked at opportunities for India in the US and other export markets.

I leave you with this interview of a quant trader, which has many nuggets of wisdom for investors. Apart from the strategies he talks about, he says he learnt two things from investment guru Ramesh Damani — “Buy truckloads when there is an opportunity” and “There are no losses, only lessons learnt.”

Cheers,

Manas Chakravarty

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